Quiver Quantitative - Apple (AAPL) faces a significant legal hurdle in its ongoing patent dispute with Masimo, as the US Court of Appeals for the Federal Circuit has declined to extend a pause on an import ban of certain Apple Watch models. The ruling affects Apple's Series 9 and Ultra 2 smartwatches equipped with a blood oxygen measurement feature, which the US International Trade Commission (ITC) previously found to infringe upon Masimo's patents. As a result, Apple is compelled to halt sales of these specific models in the US while the appeal of the ban continues, a process Apple anticipates could extend over a year.
In response to the import ban, Apple has prepared a contingency plan: selling versions of the watch that lack the disputed blood oxygen feature. The company has developed a software workaround, effectively removing the functionality from its devices. This adaptation received approval from the US Customs and Border Protection agency last week, allowing Apple to offer redesigned versions of the watches without the oxygen reader. Meanwhile, Masimo's shares experienced an uptick, rising by as much as 2.8% and reaching their highest intraday level in over five months following the court decision.
Market Overview: -Apple Watch Series 9 and Ultra 2 sales in the U.S. halted due to court-ordered import ban. -The ban stems from a patent dispute with Masimo over blood oxygen measurement technology. -Apple forced to offer watches without the disputed feature while the appeal plays out.
Key Points: -Federal Circuit court denies Apple's request for extended pause on import ban. -Apple has a software workaround to remove the blood oxygen feature but will likely sell non-infringing Watch SE. -Masimo shares jump on the news, highlighting potential benefit from legal victory. -Apple Watch series with blood oxygen were central to the company's wearables segment, which generated over $40 billion last year. -The ban creates uncertainty and potential financial impact for Apple until the legal case is resolved.
Looking Ahead: -Apple's appeal of the import ban could take a year or more. -The ban could harm Apple's competitiveness in the U.S. smartwatch market. -Masimo's legal victory could strengthen its position in the health tech market.
This legal confrontation poses a significant challenge for Apple, especially considering the importance of its smartwatch line within its broader product ecosystem. The wearables, home, and accessories division, which includes the Apple Watch, is a major revenue generator for the company, contributing over 10% of its total revenue last year, equating to nearly $40 billion. The October ITC ruling and subsequent sales pause, particularly during the crucial holiday season, underscored the potential impact of the dispute on one of Apple's key revenue streams.
The court’s decision not to extend the stay, while not addressing the merits of the appeal, underscores the complexities of patent litigation in the tech industry. Apple has criticized both the ITC's ruling and Masimo's position, disputing the extent of potential reputational harm and questioning the validity of Masimo's claims regarding its competing W1 watch. The ongoing case, Apple Inc (NASDAQ:AAPL). v. ITC, continues to unfold in the US Court of Appeals for the Federal Circuit, with both companies yet to comment on this latest development.
This article was originally published on Quiver Quantitative